I wasn’t aware that India has setup institutes where you can get Credit Counselling to reorganize your debt and prevent your income from eroding. You can overcome the debt burden and improve your money management skills too. Abhay and Disha are two initiatives, supported by the Bank of India and ICIC Bank Limited, started in early 2007. They cover the broad categories of - Financial Education, Credit Counselling and Debt Management.

Most developed countries have a centralized counselling centre, started by a number of banking companies together. The National Foundation for Credit Counselling (NFCC) in the US and Consumer Credit Counselling Service (CCCS) in UK are similar initiatives setup in 1951 and 1993 respectively. Other developed countries like Canada and Singapore have similar centers.

These centers conduct one-on-one sessions with financially distressed borrowers. They then contact the nodal officers of banks involved and brief them on the broad indebtedness of the borrower. They usually follow 3

1. examine ways to solve current financial problems
2. create awareness about the costs of misusing credit (it improves financial management and develops realistic spending plans)
3. advises distressed people on gaining access to the structured financial system, including banking

There are even options for pre-credit and post-credit counselling. Pre-credit counselling helps borrowers to decide upon the quantum of loans they can avail, based on their income profile and stream of cash flows. More importantly, the institutes attempts to influence the stability of the borrowers’ flow of income and expenses, thereby lowering the probability of default. Post counselling typically occurs after a crash event, when the borrower has already missed one or several payments.

So, Credit Counselling can help you reset and then restart your life all over again.

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Credit card usage usually follows the predictable cycle of impulsive buying and overspending. That’s why there are many opponents as votaries of plastic money. Of course, credit cards need not be a losing proposition, if you use them smartly and safely.

Use during dire consequences

Unless you’re rich enough to flaunt your extra money, it is best to keep your Credit Card just for emergency cases. May be to use as a payment at a hospital when you don’t have enough cash in hand or your debit card account is less. However, what other events constitutes an emergency? It will depend on your individual perception but here is a rule - if you can delay buying that and won’t hurt you, it’s not an emergency.

However, todays youth believes in instant gratification, an emergency could mean buying that much-needed extra pair of jeans. This is NOT an emergency.

Credit Card companies makes huge profit from you

Credit card companies would not be chasing people to distribute free cards if there was no money in the business. They make money from the high interest rate - about as high as 40% a year - on the credit they give you. If we pay just the minimum amount due every month, we are either paying off our debt very slowly, or not paying it off at all. This is exactly what credit card companies profit from, since the hefty interest they charge is on the total outstanding amount.

Your billing cycle date

The main advantage a credit card provides is, well, credit. As a card holder, you’re smart if you pay no interest, and even smarter if you make full use of the interest-free credit period you’re entitled to. How much credit you get for a purchase depends on your billing cycle date. Any purchase made during the cycle before the billing date will show up in your bill, thus reducing the number of interest-free days for which that particular purchase gets credit. Purchases made immediately after the billing date will get more interest free days of credit.

RTFP (Read the Fine Print)

Go over “free” offers from your credit card company with a fine-toothed comb. As a number of consumers of a leading credit card company found out, the “free” insurance that came along with their credit card was not really free. Unfortunately, they found out only after the extra charges had been deducted automatically for the service rendered.

Most card companies presume you are interested in the scheme, unless you call and specifically state that you are not interested. They mention this presumption, however, only in the fine print. A reversible may be possible, but then it adds up to extra work.

The borrowing bogy

Credit card companies are not the best lenders to borrow from. If, for some unfortunate reason, you have to, there are some points it’s best to be clear on.

If you’re offered a big loan, it could be at the cost of your credit limit being blocked. A blocked credit limit would restrict you from making other big purchases on your credit card. That’s not necessarily a bad thing, of course, but it’s better to be aware about it before hand.

Be aware also that credit card companies generally do not allow pre-payment until after a certain period has elapsed. When you decide to pay up, let them know about it before dashing off a cheque to your credit card account. Credit card issuers are likely to divert the money first to any outstanding payments, unless you specifically tell them you’re exercising your pre-closure option.

Consolidate your debts

You can take advantage of the balance transfer option if you have more than one credit card, from more than one card issuer. The balance transfer option allows you to pay off one credit card company by transferring all its credit to another (be sure to ask for details about processing fees). Some companies even offer a three-month interest-free period on the transferred amount. Transferring balances has its advantages, since it helps you reduce the number of loans. Even if the actual amount you owe is not really being reduced-only the creditor changes-just the fact of having one creditor can increase your peace of mind. And if you could pay off the entire amount within the interest-free three month period, you would be doing yourself a huge favour by saving on interest charges.

Don’t be shy

Making the best use of your credit card also means asking for reversals when your request is valid and justified. Take the example of the credit card customer who demanded a reversal on annual fees after once her credit card company started offering free cards to new customers. Her logic was, if the company was ready to oblige new customers, it ought to reward loyalty and pamper old customers. This savvy card holder has not paid the Rs. 500 annual fee since the past three years now.

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